On October 9, 2007, the Chancellor announced changes to the rules governing Inheritance Tax (IHT) so that married couples or civil partners could combine their IHT allowance. They can now transfer the tax-free allowance, also referred to as the nil rate band, to their spouse/civil partner when they die.

The nil rate band for IHT is currently £300,000 per person, so couples can now protect up to £600,000 of their estate from IHT on the death of the second spouse. This is not a doubling of the tax-free threshold per se, as couples who undertook careful financial planning have always been able to shelter their total tax-free allowance from the taxman, usually by setting up a nil rate band trust on the death of the first spouse, but the new rules make this a simpler procedure.

The transferable allowance will be available to all surviving spouses or partners who die on or after October 9, regardless of when the first spouse died.

The tax-free threshold available on the death of the second spouse will be equivalent to double the nil rate band applicable at that time. Gordon Brown has pledged that the nil rate band will rise to £350,000 in 2010, so if a second spouse dies after April 2010, £700,000 of the estate will escape IHT as long as the first spouse has not used any of their allowance on their death.

If the first spouse to die leaves money or assets in their will to members of the family or others, this will be deducted from their nil rate band. If they use up the tax-free allowance completely, then there can be no transfer of the nil rate band to their spouse.

To read the full document on inheritance tax click here

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